January of 2012 was a heck of a month, at least for stocks. The S&P 500 gained a hefty 4.3%, and the market’s up more than 17% from its October lows. Yet, there’s been a notable lack of volume on the way up. One could put the question this way: Where did all the money go?

There are two potential ways to interpret that — and they’re diametrical opposites.

The bullish theory is the simple assumption that the lack of volume thus far means there’s still a truckload of “cash on the sidelines” ready to flood the market and send it rocketing higher. The bearish interpretation is that any money that was available (and was going to be invested) has already been placed, and there just isn’t anymore waiting to go to work. Thus, what little strength we’ve seen in stocks so far is now going to be winding down.

But there’s even a third theory, and it suggests that the continued growth of the exchange-traded fund industry has quietly garnered all this alleged “cash on the sidelines.” Like with the bearish theory, this means that cash is already in the market and can’t be used to buy again.

Don’t scoff at the idea. We truly may be at the point where we can say money being locked up by ETFs is keeping money out of direct investment in individual stocks. If that’s the case, things could continue to get even tougher for the overall market.

Before we write the obituaries though, let’s look at some measurable trends.

Numbers Don’t Lie

Just to put things in perspective, the biggest energy ETF is the Energy Select Sector SPDR (NYSE:XLE), with a $6.72 billion market cap. Its top two holdings are Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM). They make up 15.2% and 19.2% of the fund, respectively, or roughly $2.3 billion worth of the two stocks.

That’s not an alarming problem because Exxon boasts a market cap of nearly $400 billion, and Chevron is a $205 billion company. Surely $2.3 billion worth of the two giants isn’t too much for one institution to own, right?

Well, no. But it’s not just one institution that owns huge chunks of these companies.

The sum total of assets held in ETFs devoted explicitly to energy and oil assets is around $25 billion. Assuming the same proportion of XOM and CVX are held by each, all of a sudden $10 billion worth of $605 billion in market cap is held by one industry.

And let’s not forget the market’s biggest index funds, like the SPDR S&P 500 ETF (NYSE:SPY). That’s now a $100 billion fund, 5.4% of which is made up of Exxon Mobil and Chevron. That’s another $5.4 billion worth of the $605 billion market cap of the combined companies now off the table for other investors. How many other sizable index funds are hogging more shares of the market’s biggest companies? Answer: About another $100 billion worth, when adding up all the rest.

And more ETFs are constantly being launched, numbering in the hundreds every year now. Each of them takes another hunk of the effective float for all major stocks off the table.